Jim O’Neill interview: Making a MINT in the new BRICs (Grant Thornton – March 6, 2014)

http://www.grant-thornton.co.uk/

Ed Nusbaum, Global CEO at Grant Thornton International, talks to leading economist Jim O’Neill, about where the world’s next economic powerhouses will be.

When economist Jim O’Neill coined the term ‘BRIC’ in 2001 to group together the fast-growing economies of Brazil, Russia, India and China he couldn’t have known that the insight would prove so powerful. In our exclusive interview, he reviews how the BRICs are performing, presents a new acronym and reveals who he thinks will win the economic race to export growth: Germany or the UK.

From a business investment point of view, which markets excite you most over the next decade?

The markets which excite me from an investment perspective depend – and vary –according to the price and actual growth compared to expectations. So today, for example, even though Chinese growth is slowing, its markets have fallen so much that the implied price of the equity market compared to earnings is quite low. At current prices at the time of writing, most BRIC markets are quite cheap, both relative to the rest of the emerging world and the developed world. So for me, China, Brazil and Russia look interesting.

Elsewhere, I find continental Europe attractive. For the same reasons – except that people have written off the eurozone so much I think it is probably a mistake – some of the peripheral markets, especially Greece, Portugal, Spain and Italy, are attractive.

The Grant Thornton Q2 2013 IBR results show just net four per cent of Chinese businesses are optimistic about the next 12 months while the US (55%) and global (27%) averages are much higher. Is their relative pessimism justified?

Linked to my previous answer, I think this is encouraging and I am not surprised, because most people are influenced by the most recent events and the US has positively surprised while China has disappointed very high expectations. Part of China’s problem is that everyone became addicted to 10% growth and that’s not going to happen anymore. There is a new era, which is all about the quality and not the quantity of growth.

Wages in China have risen by around 15% per annum over the past decade. Should businesses be looking at its economy as a potential market for their goods and services, rather than as a workshop?

Yes, is the simple answer! China’s days as the cheap workshop are over. It is time to allow the cheap manufacturing to be done elsewhere.

Where will the next ‘workshop of the world’ be?

I don’t think there will be another workshop on the scale of China, but a number of places benefit from China’s wage increases. Perhaps Mexico and a number of southeast Asia countries are the biggest winners as they now appear cheap, but even parts of the US will feel the benefit, especially given the importance of design and value added for manufacturing as we progress.

Much has been made of the political situation in Russia and the dependence of the government budget on commodity prices. Do you expect significant growth in the Russian economy over the next few years?

Russia is far too dependent on oil and gas, and they need to adjust this, especially given the shale revolution and the likely decline in oil prices in coming years. I have been telling Russian policymakers for years that they should become less addicted to rising oil prices and it would be more sensible for them, perhaps even just for prudence, to budget for lower oil prices.

In terms of the political situation, in general I think we exaggerate it as an issue. Russian people like a strong, powerful leader and don’t care about some aspects of democracy in the way we think they should. That said, in the new term of Putin’s office, he has presided over more and more apparent attempts to control the popular agenda and not allowing for dissidence. This has to change, as without freedom for change and innovation, Russia is going to be far too addicted to the need for higher oil prices.

Building on the success of your BRIC acronym, MINT refers to the rapidly developing frontier markets of Mexico, Indonesia, Nigeria and Turkey. Which of these economies should investors look at most closely? Are there any others, such as Peru and Chile, which deserve special attention?

For the rest of this interview, click here: http://www.grant-thornton.co.uk/en/Thinking/Jim-ONeill-interview-Making-a-MINT-in-the-new-BRICs-/?previouspage=7262

 

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